On February 17th, the Beastie Boys Home Video is awarded Gold status for 50,000 units sold. Yet, with ligitation still underway way between the Beastie Boys and Def Jam, the group can not truly appreciate the continued success in sales. Already entertaining offers from other record labels, the Beastie Boys formally split from Def Jam (CBS Records) and sign with the Los Angeles based Capitol Records.
Enthused about a tape of demos that they were sent by Matt Dike, the Michael Diamond and Adam Yauch arrange to meet up with Matt Dike, Mike Simpson, John King, and Mario Caldato Jr. in California to begin work on what would become Paul's Boutique. The earliest recordings to feature the Beastie Boys rhyming over the Dust Brothers tracks were recorded at Matt Dike's house on a 16-Track recorder. Without a residence to call home, the Beastie Boys stayed at some of Los Angeles' finer hotels and got around town by renting cars. Before long it became apparent they would need to purchase or rent a place of their own. A lease was then signed to rent a mansion in the Hollywood Hills previously occupied by Hollywood director Alex Grasshoff, the Beastie Boys nicked named the house the "G-Spot" and settled into their new place and began a summer of hosting bar-b-ques and pool parties.
To record the final mixes heard on the Paul's Boutique album, the Beastie Boys entered two of Los Angeles' premier facilities: The Record Plant and Ocean Way Studios.
In an attempt to clear up the rumors circulating about his future involvement with Def Jam and the Beastie Boys, Rick Rubin sets the record straight in the October 8th, 1988 issue of New Music Express. In the NME article he states that he is currently in Los Angeles working on developing his new Def American record label and recording an album by the British rock band Wolfsbane.